Meals and Entertainment Deductions after Tax Reform

The Tax Cuts and Jobs Act generally disallows a deduction for expenses with respect to entertainment, amusement, or recreation. However, the Act does not specifically address the deductibility of expenses for business meals.

The Department of the Treasury and the Internal Revenue Service intend to publish proposed regulations which will include guidance on the deductibility of:

-expenses for certain business meals

-expenses for food and beverages furnished primarily to employees on the employer’s business premises

-when business meal expenses are nondeductible entertainment expenses and when they are 50 percent deductible expenses

 

The Act generally disallows a deduction for any item of an activity that is of a type generally considered to constitute entertainment, amusement, or recreation.  It generally provides that no deduction is allowed for the expense of any food or beverages unless:

(A) such expense is not lavish or extravagant under the circumstances, and

(B) the taxpayer (or an employee of the taxpayer) is present at the furnishing of such food or beverages

 

“Entertainment” means any activity which is of a type generally considered to constitute entertainment, amusement, or recreation, such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation, and similar trips, including such activity relating solely to the taxpayer or the taxpayer’s family.

 

“Entertainment” may include:

-a hotel suite, or an automobile to a business customer or the customer’s family

-providing of a hotel room or an automobile by an employer to an employee who is on vacation

 

“Entertainment” does not include:

-supper money provided by an employer to an employee working overtime

-hotel room maintained by an employer for lodging of employees while in business travel status

-automobile used in the active conduct of trade or business even though also used for routine personal purposes such as commuting to and from work

 

The Act clarifies that taxpayers generally may continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business. Taxpayers may still deduct 50 percent of an allowable business meal expense if:

  1. The expense is an ordinary and necessary expense paid or incurred during the taxable year in carrying on any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.
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